I am often asked by clients who are starting new businesses about the difference between obtaining an ABN for their business and registering their business for GST.
An ABN is an Australian Business Number. To run a business in Australia you don’t have to have an ABN (unless you are required to register for GST), but if you are entitled to one it is almost always in your interest to do so. Why? Mainly to help your cashflow.
If you invoice another business in Australia and you don’t quote an ABN they are legally required to deduct withholding tax at 46.5% from your invoice – they pay you the net amount, you then get to claim the amount withheld against your tax return, which could be a year or more later. Pretty tough on your cashflow!
So how do you know if you can obtain an ABN? If you run your business through a company you are automatically entitled to one. There is an eligibility guide on the Australian Business Register (ABR) website and if you are a sole trader there is an easy to use “ABN Entitlement Tool” on the ATO website.
The short answer to all of the above is if you are eligible to register for an ABN you almost certainly should do so. You can apply for an ABN online.
GST stands for Goods and Services Tax, and with a few exceptions (principally fresh food, health, educational and financial services) it applies to anything you buy or sell in Australia (it is a bit more complicated than this, so if you’re not sure talk to an accountant).
If you register you must charge GST (which is currently set at 10%) on anything you sell (other than the exempt items listed above). But you then also get to claim back the GST on invoices you get from suppliers – things like phone bills, or marketing expenses, rent and so on.
The way you report this to the ATO and pay the amount due is via a Business Activity Statement, which for most small businesses has to be lodged quarterly.
Check out the next article in this series for more detail on deciding whether you are required to register for GST, or if not whether you should choose to do so.
Rhys Roberts is Founder & Managing Director of Viridity a provider of small business financial administration and computing solutions that puts the small business owner as the focus, not the ATO or the tax accountant. Rhys spent more than 20 years working in companies of all sizes – developing solutions, implementing systems, generating information. All with the objective of providing a platform to run those businesses better. For the past 8 years Viridity has been bringing that philosophy to the small & medium business market.